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Update on trade policy issues for Arent Fox clients

Although President Obama’s recent trip to Japan to discuss the Trans Pacific Partnership (TPP) did not result in specific breakthroughs on agriculture issues, it is expected that Japan will eventually work through its internal politics to get a deal, since it views TPP as its opportunity to remain a significant international economy.

The other TPP countries have been carefully monitoring the US-Japan talks regarding agriculture and believe that the agreement will start to move forward once a resolution with Japan is reached. Other sensitive provisions (i.e.pharmaceutical, intellectual property, textiles) will be more easily resolved due to trade-offs achieved in agriculture. Regarding IP, we have been told by senior Congressional staff that USTR is adamant about including a “two-tier” system for pharmaceutical IP, in which developing countries would adhere to a less onerous IP standard than developed countries. This is the position the US has taken with recent bilateral FTA’s, and has been discussed and disseminated in the trade press with respect to TPP, but has not been formalized.

The agriculture discussions may take some time to resolve, in part because Congress has not yet approved “fast-track” trade promotion authority, which means any agreement reached beforehand is subject to being altered by Congress. This has slowed down progress on TPP and is also affecting the TTIP negotiations with the E.U.

A vote on fast-track will not occur before the November mid-term elections to due political concerns from Democratic leaders, and will likely not come up until 2015. There remains a significant amount of opposition to granting this authority among the House and Senate Democratic caucuses, and, in addition, the Administration generally has received poor marks on its outreach efforts regarding TPP. However, perhaps in recognition of this view, we have heard from Congressional staff that USTR has begun proactive outreach to Congressional offices to schedule briefings on key issues, whereas previously these briefings were largely the result of requests from Congress.

We were told by one of the negotiating countries that TPP members understand Congress’s role, but that it will not necessarily prevent an agreement from getting finalized prior to Congressional action, because it is expected that the US will insist on renegotiating parts of TPP anyway, as it has with recent bilateral FTAs to meet domestic political concerns. In other words, if the other TPP countries think they have a good deal with the US, they may want to sign even if Congress has not acted yet. This is the view of one TPP member and, based on our discussions, is not shared by members and staff on Capitol Hill, who generally view the lack of fast track as a major impediment to closing a TPP agreement.

In addition, during a hearing before the Senate Finance Committee on May 1, Amb. Michael Froman noted that discussions regarding currency manipulation with TPP countries have not yet occurred, which surprised members of the Committee since solid majorities of both houses of Congress have written to the Administration asking for action on this issue in TPP given its impact on US exports. The Administration will have to address this issue in a substantive way in order to move a TPP agreement through Congress.

Despite the lack of fast-track authority from Congress, USTR is continuing negotiations in Vietnam with TPP members this week to discuss issues such as footwear, textiles, and apparel.

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